Review TCCB

1.
Find FV, PV of annuity and perpetuity
Q1: You just won the grand prize in a national writing contest! As your prize, you will receive $2,000
a month for ten years. If you can earn 7 percent on your money, what is this prize worth to you
today?
Solution: t= 10*12, r= 7/12PV= 172252.7083
Q2: You buy an annuity that will pay you $24,000 a year for 25 years. The payments are paid on the
first day of each year. What is the value of this annuity today if the discount rate is8.5 percent?
Solution: Annuity due: 24 năm là ordinary và 1 năm là annuity due
PV= Pv ordinary (PV=) + PV annuity due (PV(1+r)) => PV=268538.3279
Q3: What is the future value of $1,200 a year for 40 years at 8 percent interest? Assume annual
compounding
Solution: FV= 310867.8225
Q4: Alexa plans on saving $3,000 a year and expects to earn an annual rate of 10.25 percent.How
much will she have in her account at the end of 45 years?
Solution: FV= 2333571.66
Q5: You borrow $165,000 to buy a house. The mortgage rate is 4.5 percent and the loan period is 20
years. Payments are made monthly. If you pay the mortgage according to the loan agreement, how
much total interest will you pay?
Solution: C=1043.87Total interest: 1043.87*20*12-165000
Q6: You estimate that you will owe $45,300 in student loans by the time you graduate. The interest
rate is 4.25 percent. If you want to have this debt paid in full within ten years, how much must you
pay each month? Solution: C=464.04
Q7: The Wine Press is considering a project which has an initial cash requirement of$187,400. The
project will yield cash flows of $2,832 monthly for 84 months. What is therate of return on this project?
Theo đề tính r tính theo tháng: =) nhân them 12
Solution: Rate of return tính theo năm: R=7.04%
2. Find Bond valuation
Q1: ABC CO. offers a 9.0 percent coupon bond with semiannual payments. The yield to maturity is
12 percent and the maturity date is 10 years from today. What is the market price of this bond if the
face value is $1,000? Solution: Bond value = 827.95
Q2: The yield to maturity (nominal rate) on a bond is currently 8.46 percent. The real rateof return is
3.22 percent. What is the rate of inflation?
Solution: (1+8.46) = (1+3.22) *(1+h) => H=5.076
3. Find Stock valuation
Q1: Sessler Manufacturers made two announcements concerning its common stock today. First, the
company announced that the next annual dividend will be $1.75 a share. Secondly, all dividends
after that will decrease by 1.5 percent annually. What is the maximum amount you should pay to
purchase a share of this stock today if you require a 14 percent rate of return?
Solution: D1=1.75; G=-1.5%; R=14% => Po= 1.75/14-(-1.5)=11.29
Q2: How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a
$0.70 annual dividend, the dividends increase by 2.5 percent annually, and you require a 10 percent
rate of return?
Solution: D0=0.7; G=2.5; R=10% => P0= 0.7(1+2.5%)/10%-2.5%=9.57
Q3: Upper Crust Bakers just paid an annual dividend of $3.10 a share and is expected to increase
that amount by 4 percent per year. If you are planning to buy 1,000 shares( k dung) of this stock next
year, how much should you expect to pay per share if the market rate of return for this type of
security is 12 percent at the time of your purchase?
Solution: D0=3.1; G=4%; R=12% => P1= D0(1+g)^2/R-g = 41.912
Q4: The current dividend yield on Clayton’s Metals common stock is 3.2 percent. The company just
paid a $1.48 annual dividend and announced plans to pay $1.54 next year. The dividend growth rate
is expected to remain constant at the current level. What is the required rate of return on this stock?
Solution: r=3.2; D0=1.48 => D1=1.54R=D/P0 +gP0=D1/g =1.54/3.2=48.125
Solution: D1=D0(1+g) =) g=0.04R= r +g =0.04 +3.2%=7.2%
Q5: Denver Shoppes will pay an annual dividend of $1.46 a share next year with future dividends
increasing by 4.2 percent annually. What is the market rate of return if the stock is currently selling
for $42.10 a share?
Solution: D1=1.46; G=4.2%; P0=42.10 ; R?
 P= D1/R-g =) R=7.76%
Q6: Roy's Welding Supplies common stock sells for $38 a share and pays an annual dividend that
increases by 3 percent annually. The market rate of return on this stock is 8.20 percent. What is the
amount of the last dividend paid?
Solution: P0=38; G=3%; R=8.2%; D0=? => P0=Do(1+g)/R-g =) D0=1.92

Q7: Winter Time Adventures is going to pay an annual dividend of $2.86 a share on its common
stock next year. This year, the company paid a dividend of $2.75 a share. The company adheres to a
constant rate of growth dividend policy. What will one share of this common stock be worth five
years from now if the applicable discount rate is 11.7 percent?
Solution: D1=2.86; D0=2.75; R=11.7%; P0? => D1=D0(1+g) =) g=4%P5 =D0(1+g)^6/r-g =45.19
4. Calculate payback period/ discounted payback period /NPV/ PI/IRR
Q1:A project will produce cash inflows of $2,800 a year for 4 years with a final cash inflow of $5,700
in year 5. The project's initial cost is $9,500. What is the net present value of this project if the
required rate of return is 16 percent? -What is payback, discounted payback, and PI of this project?
Solution:
*Payback: Year 1: 9500-2800 =6700
Year2: 6700-2800=3900
Year 3: 3900-2800=1100
Year 4: 1100-2800=-1700 <0
Payback= 3+ 1100/2800 = 3.39%
*Discount Payback:
PV1= 2800/(1+16%)^1 = 2413.79
PV2=2800/(1+16%)^2 = 2080.86
PV3=2800/(1+16%)^3 = 1793.84
PV4=2800/(1+16%)^4 = 1546.52
PV5=5700/(1+16%)^5 = 2713.84 =) Y1 = 9500-2413.79 = 7086.21
Y2 = 7086.21 – 2080.86 = 5005.35
Y3 = 5005.35 – 1793.84 = 3211.51
Y4 = 3211.51 – 1546.52 = 1665.09
Y5 = 1665.09 – 2713.84 = -… <0
DPP = 4+ 1665.09/2713.84 = 4.61 years
*Total of PV cash flows = 2413.79 +20080.66 + 1793.84+1546.41+2713.84 =10717.05
NPV= 10548.74 - 9500 =1048.74
PI = 10717.05/9500 = 1.11% >1 =) ACCEPT

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1.

Find FV, PV of annuity and perpetuity

Solution: t= 10*12, r= 7/12PV= 172252.7083

PV= Pv ordinary (PV=) + PV annuity due (PV(1+r)) => PV=268538.3279

Solution: FV= 310867.8225

Solution: FV= 2333571.66

Solution: C=1043.87Total interest: 1043.87*20*12-165000

Solution: Rate of return tính theo năm: R=7.04%

2. Find Bond valuation

Solution: (1+8.46) = (1+3.22) *(1+h) => H=5.076

3. Find Stock valuation

Solution: D1=1.75; G=-1.5%; R=14% => Po= 1.75/14-(-1.5)=11.29

Solution: D0=0.7; G=2.5; R=10% => P0= 0.7(1+2.5%)/10%-2.5%=9.57

Solution: D0=3.1; G=4%; R=12% => P1= D0(1+g)^2/R-g = 41.912

Solution: D1=D0(1+g) =) g=0.04R= r +g =0.04 +3.2%=7.2%

Solution: D1=1.46; G=4.2%; P0=42.10 ; R?

Solution: P0=38; G=3%; R=8.2%; D0=? => P0=Do(1+g)/R-g =) D0=1.92

4. Calculate payback period/ discounted payback period /NPV/ PI/IRR

*Payback: Year 1: 9500-2800 =6700

Year 4: 1100-2800=-1700 <0

Payback= 3+ 1100/2800 = 3.39%

PV1= 2800/(1+16%)^1 = 2413.79

PV5=5700/(1+16%)^5 = 2713.84 =) Y1 = 9500-2413.79 = 7086.21

Y2 = 7086.21 – 2080.86 = 5005.35

Y3 = 5005.35 – 1793.84 = 3211.51

Y4 = 3211.51 – 1546.52 = 1665.09

Y5 = 1665.09 – 2713.84 = -… <0

DPP = 4+ 1665.09/2713.84 = 4.61 years

*Total of PV cash flows = 2413.79 +20080.66 + 1793.84+1546.41+2713.84 =10717.05

NPV= 10548.74 - 9500 =1048.74

PI = 10717.05/9500 = 1.11% >1 =) ACCEPT

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Solution: C=1043.87Total interest: 1043.872012-165000